Citation: 2022 SCC OnLine SC 1328.

Court: The Supreme Court of India.

Coram: Mukesh R Shah, J.

Date: 30th September 2022

Keywords: Section 11, preliminary inquiry, non-arbitrable matters.

Overview: The Court may interfere at the stage of Section 8 or section 11 when it ex-facie exists that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable. However, the level of judicial scrutiny would depend upon the nature and level of non-arbitrability.

Facts:

Tarun Aggarwal Projects LLP (“Petitioner”) entered into a collaboration agreement dated 07.05.2009 (“ the Agreement”) for the development of a residential colony with Emaar India Limited (“Defendant”). Subsequently, they entered into an addendum agreement dated 19.04.2011 (“Addendum”). Clause 36 of the Addendum stipulated that in case of any disputes which are related to Clauses 3, 6 and 9 arose then the other party had the right to approach the Court seeking specific performance of the Agreement. Clause 37 of the same expressly stated that except for the disputes that are mentioned in Clause 36, disputes arising out of the Addendum shall be referred to arbitration.

A dispute arose between the parties where the Petitioner claimed that Defendant did not comply with the obligations under the Addendum. In pursuance of this, they issued a legal notice dated 20.11.2019 which raised a demand for physical possession of 5 plots measuring 2160 sq. yards and demanded a sum of Rs. 10 crores for the losses from them. Petitioner invoked Clause 37 of the Addendum to state that the dispute is arbitrable and accordingly appointed their Arbitrator while requesting Defendant to appoint theirs. Defendant denied the appointment of the Arbitrator. Aggrieved, Petitioner approached the High Court for appointment of arbitrators under Section 11(5) & (6) of the act in terms of Clause 37 of the Addendum.

The High Court ruled in favour of the Petitioner. The Court reasoned the decision on a conjoint reading of Clause 36 & 37 which according to them meant that although a right to seek specific performance does exist, it does not bar settlement of disputes through the Act. The impugned order was challenged by Emaar consequently.

Issues:

Whether the Court can appoint an Arbitrator under Section 11(5) & (6) of the Act without holding a preliminary inquiry or inquiry on the arbitrability of the dispute?

Analysis:

The Court noted that Clause 37 of the Addendum stated that all disputes apart from the ones in Clause 36 have to be referred to arbitration which clearly makes the disputes in Clause 36 i.e., concerning Clause 3, 6 and 9 non-arbitrable. The Court relied on previous judgments to establish that contracts have to be read literally unless there exists ambiguity to acknowledge the intention of the parties to exclude a matter from arbitrability. The Court observed that courts cannot interpret the contracts differently or form new contracts unless the parties have agreed to it despite the fact that it may be reasonable. This was considered in light of the High Court’s interpretation of Clause 36 being a mere choice contrary to what was agreed between parties.

Further, the Court relied on (“Vidya Drolia”) to explain the law on arbitrability, enumerating the four-fold test and clearly laying that disputes that are excepted matters are non-arbitrable. It further elaborated that the Court has the authority to hold the inquiry with respect to arbitrability. This interference is entered into at the stage of section 8 and section 11 of the Act when it is ex-facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable. But the level of judicial scrutiny would depend upon the nature and level of non-arbitrability as recognized by Vidya Drolia and . The Court emphasized that this is only a limited and restricted review to check and protect parties from forcefully participating in unwanted arbitration and not an attempt to usurp jurisdiction from the arbitral tribunal.

Given the law laid down in various cases, the Court in the current case stated that the High Court was at the very least required to hold a prima facie inquiry to decide upon the arbitrability of the dispute. Herein, the High Court did not hold the primary inquiry despite observing the excepted categories as present in Clause 36, it still decided that the same was not a bar to the settlement of dispute via arbitration.

Conclusion:

The Court concluded that the High Court erred in its decision due to the above-mentioned reasoning. Since a primary inquiry was required in the case, the Court remitted the matter to the High Court to carry out the same.

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Citation: O.M.P. (COMM.) 154 of 2021.

Court: The High Court of Delhi

Coram: Vibhu Bakhru, J.

Date: 5th July 2022.

Keywords: Section 34, Arbitration & Conciliation Act, 1996 (the ‘A&C Act’), Invocation of Bank Guarantee, Section 17, Arbitration & Conciliation Act

Overview

A Single-Judge bench of the Delhi High Court adjudicated that a lumpsum amount cannot be awarded against specified claims without adjudicating the claim pending before the Tribunal. Consequentially, the Award was set aside by the High Court.

Facts

Kanti Bijlee Utpadan Nigam Limited (“KBUNL”) and Paltech Cooling Towers and Equipments Ltd. (“PCTEL”) entered into a Supply and Service Contract dated 10th September 2011 for a complete induced draft cooling tower package for Muzaffarpur Thermal Power Project Stage-II.

The time limit for completion of the said project was determined to be two years from the date of the commencement of the project, i.e., 9th August 2011. As per the terms of the agreement, two Bank Guarantees (“BGs”) amounting to ₹4,54,23,600/- were furnished by PCTEL, which were to be released upon successful completion of the Performance Guarantee Test (“PGT”). However, 17 extensions were granted to PCTEL for the completion of the project, which remained unfulfilled even after the lapse of such extensions.

On 21st April 2016, the majority of the work regarding the thermal power project was deemed complete by PCTEL for which it requested KBUNL for a Certificate of Completion of Facilities (“COF”) and the release of its dues. KBUNL was apprehensive of issuing the COF, however, after multiple meetings, the Petitioner granted a provisional COF to PCTEL provided that the outstanding work including the PGT would be completed. Thereafter, the Respondent again defaulted in performing the PGT from the date of completion and requested the Petitioner to release its BG. According to the Petitioner, since the work remained incomplete and the PGT had also not been fulfilled, they would not be releasing the BG.

Eventually, the PGT was conducted, which revealed a temperature shortfall in Cooling Towers 3 and 4 of the project which were requested to be rectified by the Petitioner and conduct a PGT for the release of its BG. Upon the Petitioner’s failure to release the BG, PCTEL filed a Writ Petition in the Delhi High Court, seeking the release of the Performance-based BGs which was eventually dismissed by the Court by directing the parties to approach the appropriate dispute resolution forum. Subsequently, another Civil Suit was filed by PCTEL which was dismissed as withdrawn by the Court with the liberty to avail the appropriate legal remedy.

Thereafter, the dispute was adjudicated by an arbitral tribunal in light of the relevant provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). The Respondent filed a claim before the Tribunal amounting to Rs 45,95,10,542/- which was met with a counterclaim filed by the Petitioners; however, the latter was rejected summarily by the Tribunal on account of it merely being “a counterblast to PCTEL’s claim at a belated stage”. Subsequently, the Tribunal awarded a lumpsum amount of Rs 5.5 Cr. to the Respondent after dismissing its application under Section 33 of the A&C Act seeking clarity on whether the amount awarded was inclusive of the Performance-based BG.

The said Award had come up in appeal against an application filed under of the A&C Act by the Petitioner on the ground that the Tribunal failed to accord any reason towards calculating the quantum of the amount awarded to the Respondent.

Issue

Whether an arbitral tribunal can award a lumpsum amount as opposed to specified claims without even adjudicating the claims?

Analysis

At the outset, the Court expressed its displeasure with the way in which the Tribunal drafted the impugned Award. It noted that of the 152 pages in the Award, 142 were a mere reproduction of the parties’ pleadings with only the last 3 pages being indicative of the Tribunal’s findings and reasoning. It then went on to discern the validity of the Award, particularly critiquing the Tribunal’s failure to adjudicate the dispute before making its decision. Essentially, the High Court’s decision can be summed up as follows:

i. The Tribunal incorrectly assessed the period of completion of the project under the assumption that the repeated granting of extensions by KBUNL alluded to its incorrect assessment of the period required for completion of the work.

ii. The COF issued to the Petitioner was to enable PCTEL for collecting certain amounts notwithstanding that certain works required completion. According to the Tribunal, the COF issued was casual in nature but later observed the same to be a conditional one in KBUNL’s statement of defence, making the Tribunal’s finding ex-facie erroneous.

iii. With regard to the quantum of claims and counterclaims filed by the parties, a lumpsum award of Rs 5,50,00,000/- in favour of the Respondent was erroneous since there is no basis for such quantification. The Tribunal, in order to “meet the ends of justice”, had passed the aforesaid arbitrary award. Such an award of an arbitrary amount without the adjudication of the dispute between the parties is unsustainable.

iv. Additionally, an application under seeking clarification as to whether the Award was inclusive of the BG would be unmerited when the Award itself is devoid of any basis for calculation.

Conclusion:

The Court was of the opinion that the Tribunal’s decision towards awarding a lumpsum amount despite the existence of specified claims was an incorrect one. An award cannot be passed merely to meet the ends of justice. Instead, the dispute ought to be properly adjudicated between the parties and the quantum of the award should be properly calculated by the Tribunal.

[This case note has been authored by Mayannk Sharma, an Editor at Mapping ADR.]

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Citation: 2022 SCC OnLine Del 3123

Court: The High Court of Delhi

Coram: Anup Jairam Bhambhani, J.

Date: 27th September 2022

Keywords: Section 11, Arbitration & Conciliation Act, 1996 (the ‘A&C Act’), Limitation Act, 1963, Consent of Parties

Overview:

A Single Judge bench of the Delhi High Court adjudicated that despite the consent of parties, arbitration proceedings cannot be initiated if such an application is time-barred.

Facts:

The Petitioner and the Respondent entered into an Agreement dated 02.05.2014 (“the Agreement”) for the sale, implementation, and installation of multi-media accessory systems and software for 24 Hour Smart Live classes in the schools owned by the Respondents. The Petitioners terminated the Agreement via notice dated 04.01.2017 and sent subsequent reminder notices on 24.03.2017 and 22.08.2017. However, the current petition was filed under Section 11 of the A&C Act for the appointment of an Arbitrator for a dispute stemming from the Agreement only on 21.01.2022, thereby crossing the three-year limitation as encapsulated within Article 137 of the Limitation Act, 1963.

Issue:

Whether the invocation of arbitration via the current petition is time-barred?

Analysis:
The Respondents relied on to argue that the limitation period for the notice of arbitration would not get extended by correspondence through letters between the parties. It was further emphasised that a claim would be time-barred unless a “clear notice invoking arbitration setting out the particular dispute” is sent to the other party within three years. However, the Petitioner brought to the attention of the Court that in the aforementioned judgment it was noted that the Court may only refuse to refer the matter to arbitration “where there is no vestige of doubt that the claim is time-barred” and that in the event of even the slighted doubt, the rule is to refer the dispute to arbitration.

The Court noted that the invocation notice dated 28.07.2021 for payment of arrears, which was built upon the termination notice dated 04.01.2017, denotes that the cause of action first arose in the latter. Hence, the invocation notice should have been issued before 03.01.2020, as against 28.07.2021, which is beyond the prescribed period of limitation. The Court relied upon and observed that limitation only “bars a legal remedy and not a legal right” since it has been founded upon a policy to ensure that remedies are not available “endlessly”.

Conclusion:

The Court held that arbitration cannot be invoked once a claim is ex-facie time-barred under the Limitation Act, 1963 despite the consent of the parties. It also affirmed that communication between parties does not extend the period of limitation. This decision is in compliance with the Apex Court’s in , where it notes that limitation must be calculated from the date of the first cause of action such that any further negotiations must be pleaded and explained for its exclusion from the limitation period.

[This case note has been authored by Vatsala Poddar, an Editor at Mapping ADR.]

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Case Citation: Rev.I.A.No.1/2022 in ARRB APPL.No.138 of 2017

Court: In the High Court of Andhra Pradesh at Amaravati

Coram: Hon’ble Sri Justice R. Raghunandan Rao

Date: 30th September 2022

Keywords: Section 11 of the Arbitration and Conciliation Act, 1996; Review Application; Procedural Review.

Overview

The High Court of Andhra Pradesh at Amaravati held that a review petition on merits is not permissible unless a specific provision exists for such a review. However, the court also stated that in case there is a procedural irregularity, the order can be subjected to a procedural review.

Facts

The respondent in the Arbitration Application is the review petitioner, and the respondents in this review petition are the applicants.

On 14th December 2011, the applicants (respondents) and the respondent (review petitioner) entered into a development agreement for the development of a piece of land to construct an apartment complex in the said land in Pata Srikakulam Village, Srikakulam Mandal and District. However, a dispute arose between the parties, and an application was filed before the Court under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) for the appointment of an arbitrator. Accordingly, an Arbitrator was appointed to adjudicate the disputes between the parties after the court allowed the application.

Later, the respondent filed a review application in the High Court of Andhra Pradesh at Amaravati against the order given by the arbitrator. The review petitioner contended that even though he claimed in paragraph 14 of the order that the application was barred by limitation, the learned Judge had not taken the said claim into account, due to which, the right of the review petitioner to object to the arbitration on the ground of limitation was lost.

ISSUE

The main issues, in this case, were as follows –

1. Whether a review petition under Section 11 of the Act against the order was maintainable or not?

2. If there were any provision in the “the act” which provided for a review of an order passed under Section 11 of the Act?

2.1 In case of the absence of such a provision, would the review fall under the category of procedural irregularity or under the category of review on merits?

ANALYSIS

The court, in the judgement, noted several precedents in context to the sub-issues before arriving at the verdict. The Judge first noted the case of , and affirmed that the proceedings under Section 11 of the Act were judicial proceedings, in the light of the fact that court had appointed the arbitrator in this case. The Judge next, moving to the main issue of the case, observed that unlike in the case of , where the supreme court had the mandate to review the petition under Article 137 of the Constitution of India, the present application before the High Court did not have that benefit. Additionally, the judgement also noted the case of wherein the Supreme Court highlighted sub-sections (1) and (3) under section 11 of the Act to draw a distinction between procedure and powers of the Tribunal under the Act, and also further elucidated upon the expression “review”. The judge explained “review” in two senses First, either as a procedural review where the order was erroneous on procedural grounds. Secondly, as review on merits where the error was in context the correct application of law. This expression is crucial to the case as it laid down the essentials of categorising a review application under merit or procedural error.

In context to the main issue raised in this case, the court cited the case of , wherein the High Court of Allahabad took the view that the power of review is a creature of the statute and in the absence of such specific power, it would not be appropriate to hold that a review is maintainable, unless the review is a procedural review. Thus, the Judge noted, ‘in the extant case’, that since there is no provision in “the Act” providing for a review of an order passed under Section 11 of the “Act”, the review in question, cannot be held maintainable. Consequently, the only other circumstance under which the order would be subject to review would be on procedural grounds, which was again something in question before the court.

Thus, the court on the question of whether the review sought by the review petitioner fell under the category of procedural irregularity or under the category of review on merits, inferred that the complaint of the review petitioner is on the merits of the order passed by the learned Judge and hence, the review sought by the review petitioner would have to be treated as a review on merits.

Conclusion

The court thus held two major verdicts in this case –

1. Since no provision in the Arbitration and Conciliation Act provides for a review of an order passed under Section 11 of the Act, the order could not be reviewed. Furthermore, it was held that the provisions of the Act do not make out a case for holding that such a power of review was available by implication.

2. The only other way to review the order in case of the absence of a provision was if there was a procedural irregularity. However, in this case, the court inferred that the complaint of the review petitioner is on the merits of the order passed by the learned Judge and that there was no procedural irregularity in terms of non-service of notice to the affected party or passing of an order without hearing the affected party. Thus, it was held that the review could not be allowed on the grounds of procedural irregularity either.

Considering the above holdings, the court rejected the review application. It established that the High Court had the jurisdiction to review the order under section 11 of “the act” only on the grounds of procedural irregularity and not based on merits. The judgement has therefore brought further clarity regarding High Court’s jurisdiction on reviewing Arbitral orders under section 11.

[This case note has been authored by Kaushiki, an Editor at Mapping ADR.]

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Citation: O.S.A.No.341 of 2019

Coram: Paresh Upadhyay, J. and D. Bharatha Chakravarthy, J.

Date: 28th September 2022.

Keywords: Section 34, Arbitration & Conciliation Act, 1996 (the ‘A&C Act’), Inequitable Contract, Specific Performance, Section 14, Specific Relief Act (the ‘SR’ Act), Section 20, SR Act.

Overview

A Two-Judge bench of the Madras High Court adjudicated that an Arbitral Award directing the specific performance of a contract, could not be set aside on the basis that the contract from which the dispute arose, was inequitable. Consequentially, the Madras High Court set aside the order of a Single Judge Bench of the Madras High Court.

Facts

Macro Marvel Projects Ltd. (“Appellant”) and Mr J. Vengatesh, A.R. Gomathi and V.Annalakshmi (“Respondents”) through their Power of Attorney, M.Arumugam, entered into an agreement of sale dated 17th February 2004. Under the terms of the agreement, the Respondents agreed to transfer land admeasuring 8.21 acres for a sale consideration of Rs. 3,85,000 per plot of land. An advance of Rs. 1,00,00,000 was agreed to be paid to the Respondents. Rs. 65,00,000 of this advance amount was to be paid to the Respondents upon the receipt of project finance by the deposit of title deeds of the property held by the Respondents. The Appellant had been authorised to identify buyers for the plots of land and enter into sale agreements for the same as well as obtain building licenses, etc. An arbitration clause had been inserted in the sale agreement under which all disputes that would arise out of the agreement would be referred to and settled by an Arbitral Tribunal in Chennai. Owing to a sudden rise in Real Estate prices, the sale consideration was revised upwards, first to Rs. 4,20,000 and then to Rs. 5,00,000. Subsequently, the Power of Attorney in favour of M. Arumugam was cancelled and the Respondents refused to execute further sale deeds for the unsold plots.

Given the Respondents’ refusal to execute the sale deeds for the unsold plots, the Appellant invoked the arbitration clause and after consultation with the Tribunal, filed a statement of claims in January 2007, praying for specific performance according to the terms of the agreement for sale, and further sought damages for delay in registering the sale deeds. The same was granted by the Tribunal.

The Respondents challenged this Award before a Single Judge Bench of the Madras High Court under Section 34 of the Arbitration Act. The Respondents contended that the Award suffered from patent illegality and was in violation of the fundamental policy of India. The learned Judge found that the agreement gave an undue advantage to the Appellant, and further that the Arbitrators had not considered Section 14(i) and 20(2) of the Specific Reliefs Act. An Award for specific performance was thus deemed to violate the public policy of India. The learned single Judge altered the Award of the Arbitral Tribunal and directed that a sum of Rs. 50,00,000 be paid to the Appellant by the Respondents within 6 months.

Aggrieved by this Judgement, the Appellant filed an intra-court appeal before a Two-Judge bench.

Issue

i. Whether an Award could be interfered with, varied or modified under Section 34 of the A&C Act?

ii. Whether the Court may interfere with an Award for Specific Performance when the contract is alleged to be inequitable and thus not specifically enforceable?

Analysis

With regards to the first question of variation or modification of the Arbitral Award, the Court held that under Section 34 of the A&C Act, any variance or modification of the Award and any grant of a new or modified relief is impermissible. The same was laid down in the case of . Thus, it was held that the Judge was not right in varying the Award of the Arbitral Tribunal and ordering the sum of Rs. 50,00,000 to be paid. The same was beyond the scope of the Court’s powers under Section 34. Citing Redfern and Hunter on International Commercial Arbitration, the Court held that the limited remedy granted under Section 34 is co-extensive with the limited right conferred by the Section, namely the right to either set aside the Award or to remand the matter. In doing so, the Court limited the broad application of powers under Section 34, that the learned single judge on the original side had sought to undertake.

With regard to the second question, concerning the grounds for interference, the Court found that there were several rival contentions of both the Parties which needed to be appreciated by the adjudicatory authority. These contentions would have been dealt with and considered by the Arbitral Tribunal when it appraised the evidence and rendered its finding that it was a case of specific performance. The mere possibility that a Court may, upon the construction of the documents and evidence submitted before it, may draw an alternate conclusion could not be sufficient ground to interfere with the Tribunal’s Award. The Court held that an attempt to interfere with a decided position laid down by the Arbitral Tribunal would amount to an appeal of the Tribunal’s Award, which falls outside the scope of the Court’s powers under Section 34. When the parties have chosen arbitration as the forum for the resolution of their disputes, the Arbitral Tribunal’s decision shall be final and shall not be interfered with unless one of the specific grounds which are available under Section 34 is present. Thus, there existed an implicit understanding, with the inclusion of an arbitration clause, that the Tribunal’s Award would be final, binding and not amenable to change, except when it is liable to be set aside under Section 34. In drawing this inference, the Court has displayed marked deference to the Award of the Arbitral Tribunal and placed strict limits on its powers of interference with the Arbitral Award.

Conclusion

The Court, therefore, set aside the order of the Single Judge of the Madras High Court, giving firstly, that, courts may not vary or modify the terms of an Arbitral Award under Section 34, and secondly, that to warrant interference under Section 34, presence of the specific grounds specified under the Section must be shown, and a mere possibility that the Court may have arrived at an alternate conclusion cannot warrant interference under the same.

[This case note has been authored by Ishan Mhapsekar, an Editor at Mapping ADR.]

The post M/s. Macro Marvel Projects Ltd. v. J. Vengatesh & Ors. appeared first on Mapping ADR .

Citation: O.M.P.(I) (COMM.) 244 of 2022

Court: The High Court of Delhi

Coram: Mini Pushkarna, J.

Date: 6th October 2022

Keywords: Joint Venture, Invocation of Arbitration Clause, Section 9, Arbitration & Conciliation Act, 1996.

Overview

A Single-Judge bench of the Delhi High Court held that a member of a joint venture cannot, in its individual capacity, invoke the dispute resolution clause and independently approach the court. Consequently, the Petition by Consulting Engineers Group Ltd. was dismissed by the High Court.

Facts

The Respondent, the National Highways Authority of India (“NHAI”), had in a notice dated 15th March 2018 invited tenders for consultancy services to supervise the construction of an expressway. According to the tender, applications could come from sole firms or joint ventures.

The Petitioner, M/s Consulting Engineering Group Ltd. (“Consulting Engineering Group”) formed a consortium with M/s Aecom Asia Company Ltd. (“Aecom”) to bid for this project, with the latter as the lead partner. A Memorandum of Understanding (“MoU”) dated 14th May 2018 was signed to this effect, and the Petitioner entered the bidding process as a joint venture with Aecom.

Subsequently, a Letter of Award (“LOA”) dated 22nd October 2018 was issued to the consortium, addressed to Aecom as lead partner and authorized representative. A Consultancy Agreement was also entered into. Clause 8 of the General Conditions of Contract (“GCC”) provided for the amicable settlement of disputes between the parties. Clause 1.8 of the Special Conditions of Contract (“SCC”) mentioned that the member-in-charge was Aecom.

Meanwhile, Larsen and Toubro Ltd. were awarded the contract for the construction of the expressway. The consortium of the Petitioner and Aecom was to supervise this construction. During the construction, an accident occurred on 28th March 2021. In September 2021, the Expert Committee constituted by the Respondent concluded that the accident occurred due to lax monitoring of quality control measures, and a lack of coordination between various parties.

Consequently, the Respondent sent a show cause notice dated 16th September 2021 to the Petitioner. Post a hearing on the 1st of December 2021, the Petitioner received an order of debarment dated the 2nd of August 2022. This order was challenged by the Petitioner in a Petition filed under Section 9 of the Arbitration and Conciliation Act, 1996. The Respondent, on the other hand, submitted that the Petition was not maintainable as there was no valid and existing arbitration clause between itself and the Petitioner in their independent capacity.

Issue

Whether a member of a joint venture can invoke a dispute resolution clause and approach the court in its individual capacity?

Analysis

The Court held that Consulting Engineering Group could not approach the Court by invoking the dispute resolution clause in its independent capacity. In arriving at this decision, the Court placed emphasis on the following facts:

i. The Petitioner entered into an MoU with Aecom, as per which it would form a consortium to provide services to the Respondent. As per the MoU, Aecom would be the lead partner, and the Petitioner would be the associate partner. The terms of the MoU did not confer any authority (whether express or implied) to the Petitioner to pursue contractual matters in its individual capacity without the lead member’s authorization or consent.

ii. The GCC further reflects that the Petitioner was not the lead member or authorized member of the consortium. The dispute resolution clause of the GCC refers to “parties”, that is, the consultants (the consortium of the Petitioner and Aecom) and the Respondent. The Petitioner is not referred to individually.

iii. The SCC shows that the member-in-charge was Aecom.

iv. The Consultancy Agreement was signed by the lead partner, Aecom, and not the Petitioner.

v. The show cause notice was issued by the Respondent to the consortium through the authorized representatives of Aecom.

vi. The technical and financial bid in the tender process conducted by the Respondent was submitted by Aecom, and not the Petitioner.

In addition, the Court relied on mainly two cases to reach its decision. First, in the Delhi High Court had held that in cases where an agreement is with a consortium, the intention is not for one member to invoke the arbitration clause separately. Second, in , the Supreme Court recognized a joint venture as a legal entity and consequently held that actions by one member of the joint venture would not be acceptable or legally tenable.

Conclusion

Therefore, the Court concluded that the Petitioner, being an associate member of a joint venture, could not invoke the dispute resolution clause in its individual capacity. Consequently, it dismissed the Petition with respect to the Respondent’s order of debarment dated 2nd August 2022.

[This case note has been authored by Tarasha Gupta, an Editor at Mapping ADR.]

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Citation: A.P. No. 555 of 2022.

Court: The High Court of Calcutta

Coram: Hon’ble Prakash Shrivastava, J.

Date: 30th September 2022.

Keywords: Section 11, Arbitration & Conciliation Act, 1996 (the ‘A&C Act’), Appointment of Arbitrator, Notice of Invoking Arbitration Clause, Section 21, Arbitration & Conciliation Act

Overview

A single-judge bench of the Calcutta High Court adjudicated that the requirements of of the A&C Act must be complied with before the jurisdiction of a court can be invoked under of the A&C Act. Given that the requirement of Section 21 to give notice to the Respondent that the arbitration clause was being invoked was not given to the Respondents, the Court held that the Application under Section 11 was premature and must be set aside.

Facts

West Bengal Power Development Corporation Limited (“WBPCL”) and Sical Mining Limited (“SML”) entered into a coal mining agreement dated 27th October 2016. Clause 42.3 of the said agreement provided that if any dispute between the parties was not resolved amicably through conciliation then it will be referred to arbitration by an arbitral tribunal. The arbitral tribunal, as per clause 42.3.2, was to be appointed by the Additional Chief Secretary/Principal Secretary to the Government of West Bengal, Department of Power and Non-Conventional Energy Sources.

When the dispute arose between the parties, clause 42.3.2 was invoked and the Additional Chief Secretary, Power Department vide order dated 10th February 2022 had appointed Sri Debidas Datta, Advisor to the Department as sole arbitrator for redressal of dispute. The Applicant, however, challenged this appointment under .

A single-judge bench of the Commercial Court allowed the application under Section 14 and duly terminated the appointment of the arbitrator vide order dated 18th May 2022. Consequently, the application was disposed and the Petitioner-Applicant filed an application under Section 11 for the appointment of another arbitrator.

The Respondent, however, raised the contention that the Application under Section 11 was premature on the ground that the requirement under Section 21, to give a notice requesting the Respondent for the dispute to be referred to arbitration, was not satisfied by the Petitioner. Section 21 of the A&C Act specifically provides that unless an agreement to the contrary exists between the parties, arbitral proceedings in respect of a particular dispute commence on the date on which the aforementioned request for that dispute to be referred to arbitration is received by the respondent.

Issue

Whether the requirements of Section 21 of the A&C Act must be complied with before invoking the jurisdiction of a court under Section 11 of the Act?

Analysis

The Court relied on the findings of the Delhi High Court in the matter of . which took note of Section 21 of the Act and found that:

i. The section clearly mentions that when there is no agreement to the contrary, the arbitration proceedings are said to commence on the date when the recipient of the notice receives a request from the claimant to refer the dispute to arbitration. The Court found that the object of this provision is to make the party, against whom the claim is made, aware of said claims. It may be the case that the recipient may accept some of the claims in whole or in part thereby narrowing down the disputed claims between the parties. Secondly, the recipient of the claim may at the time of receiving the claim itself, point out if some or any of the claims are time-barred or barred by law or if the claims stand untenable in fact and/or there are counter-claims by the recipient.

ii. Another important observation made by the court was that where the agreement between parties specifies the mode of appointing an arbitrator, there would be no way for the other party to verify whether or not this mutually decided procedure had been followed unless a notice of invoking the arbitration clause was provided to them by the claimant. The purpose of an arbitration clause envisages a consensus between the parties on the appointment of an arbitrator and not a unilateral appointment by one party. Therefore, the mandatory notice under Section 21 enables a consensus on the appointment of an arbitrator.

iii. Addressing a situation where an arbitration clause may permit one of the parties to appoint an arbitrator, the Court observed that even in such a situation the party having such control is bound to give advance notice to the other party, intimating them about the individual they seek to appoint. On being made aware of the proposed individual, the recipient may then point out ‘defects’, if any, that render this individual ‘disqualified’ to act as an arbitrator. The claimant may then be persuaded to reconsider the appointment and appoint a more qualified individual. This process also prevents unnecessary wastage of time and resources that would result in arbitration proceedings if an unqualified individual was appointed. The second, third and fourth reasons outlined by the court were in consonance with the requirements of natural justice which in any case govern arbitral proceedings.

iv. Lastly, the Court specifically observed that for the purpose of Section 11(6) of the A&C Act, without there being a notice as mandated by Section 21 of the Act, the party that wishes to reference the dispute to arbitration cannot claim that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an arbitrator. The Court’s jurisdiction under Section 11 may be invoked only if the other party fails to respond.

This judgement was also followed by the High Court of Bombay in .

Conclusion

In the present case, since the requirement of Section 21 had not been satisfied, the Calcutta High Court dismissed the Application for being premature. However, the Court gave liberty to the Applicant to follow the due process and give notice to the Respondent and in the event an arbitrator cannot be appointed in the stipulated time as per the requirements of the A&C Act, to approach the Court with an appropriate prayer.

[This case note has been authored by Nankee Arora, an Editor at Mapping ADR.]

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Citation: MANU/NL/0738/2022

Court: National Company Law Appellate Tribunal, New Delhi

Coram: Anant Bijay Singh, J. Member (J) and Shreesha Merla, Member (T)

Date: 15th September 2022.

Keywords: IBC, Arbitration, NCLT, CIRP, Adjudicating Authority

Overview:

The National Company Law Appellate Tribunal (“NCLAT”), upon hearing an order passed by the National Company Law Tribunal (“NCLT”), held that the jurisdiction of the Adjudicating Authority under of the Insolvency & Bankruptcy Code, 2016 (“IBC”) is very limited and it does not extend to referring parties to the arbitration.

Facts:

Trafigura India Private Limited (“Trafigura”) and TDT Copper Limited (“TDT”) entered into a Master Sale Agreement (“MSA”) dated 27th January 2016 as per which TDT agreed to buy a specified quantity of copper cathodes from Trafigura. The rights and obligations of the parties were governed by the terms of the MSA. As per the Agreement, Trafigura agreed to raise invoices on TDT in respect of the provisional price payable for the copper cathodes, and TDT agreed to make payment within 30 days of receiving such invoice. Trafigura supplied copper cathodes to TDT; however, TDT defaulted on invoices raised by Trafigura. Upon further negotiations, the parties entered into a Settlement Agreement on 20th November 2018 and arrived at a settlement for the amounts that were due and payable. However, when TDT defaulted on the terms of the settlement agreement, Trafigura initiated Corporate Insolvency Resolution Process (“CIRP”) against TDT under Section 9 of the IBC. During the proceedings, TDT made two arguments. Firstly, they did not owe an “operational debt” qua Section 9 hence the Adjudicating Authority must not initiate CIRP against TDT. Secondly, the appropriate relief would be to approach an arbitral tribunal in pursuance of the dispute resolution clause in the Settlement Agreement. The Adjudicating Authority accepted TDT’s first submission; however, while highlighting the limited powers of the Adjudicating Authority under Section 9, It rejected TDT’s plea to refer the matter to an arbitral tribunal. The NCLAT agreed with both the findings made by the Adjudicating Authority and reaffirmed the Adjudicating Authority’s order in its entirety.

Issue:

Whether matters could be referred to arbitration by the Adjudicating Authority under Section 9 of the IBC?

Analysis

The NCLAT stated that the Adjudicating Authority has a very minimal role to play in IBC adjudication and that it has no power to refer parties to arbitration under Section 9 of the IBC. This ruling is in line with the well-established jurisprudence on the jurisdiction of the NCLT in hearing matters under Sections , & of the IBC. The Supreme Court of India (“SC”), on this matter, has held that the role of the adjudicating authority when hearing applications under Section 9 is restricted to two tasks. Firstly, NCLT must ascertain the existence of a debt incurred by the corporate debtor. Secondly, if the result of the foregoing inquiry is made in the affirmative, then the Adjudicating Authority ought to admit the corporate debtor into CIRP; however, if the result of the foregoing inquiry is made in the negative, the application to admit the corporate debtor into CIRP is rejected. Moreover, in . the SC even frowned upon the practice of NCLTs engaging in judicial innovation to broaden their own powers under Sections 7, 9 & 10. The Court held that such practices must be kept to the minimum and the adjudicating authority should focus on its sole role to ascertain the existence of a debt.

Conclusion:

While the ratio of this judgment is quite limited in its application, it clarifies the position of law on the powers of the adjudicating authority under the IBC One must not construe the order of the NCLAT as a bar on a party’s rights to recover money vide arbitration and being forced to admit such a debtor into CIRP. The ruling merely pertains to the NCLT’s powers under Section 9 of the IBC and does not address the arbitrability of monetary reliefs in case of a breach of a contract. The NCLAT, in its judgment, even stated that the corporate debtor is free to approach the court of competent jurisdiction to hear the plea of referring parties to the arbitration.

[This case note has been authored by Ryan Joseph, an Editor at Mapping ADR.]

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Citation: ARB.P. 790/2020, IA 12493/2020, IA 3888/2021

Court: The High Court of Delhi

Coram: Neena Bansal Krishna, J.

Date: 15th December 2022

Keywords: Section 9, Arbitration & Conciliation Act, 1996 (the “A&C Act”), , , (the “IBC”), arbitrability, corporate insolvency resolution process (“CIRP”), National Company Law Tribunal (the “NCLT”), the doctrine of election, forum shopping

Overview

A Single-Judge Bench of the Delhi High Court ruled that the invocation of a CIRP by filing an application under Section 9 of the IBC would not render a dispute non-arbitrable because the mere assertion of an admitted debt does not amount to an admitted liability, particularly when the other party has continuously refused such liability. Moreover, approaching the NCLT prior to seeking reference to arbitration does not amount to forum shopping, given the distinct scope of enquiries of a proceeding before the two forums.

Facts

The dispute relates to an agreement whereby Brilltech Engineers Private Limited (“BEPL”) was to exclusively execute electrical works for Shapoorji Pallonji and Company Private Limited (“SPCPL”) on a residential project.

By way of a work order dated 19th December 2011, SPCPL awarded certain electrical works to BEPL. Clause 13 of this work order contained an arbitration agreement. On certain disputes arising between the parties due to SPCPL’s non-payment of amounts on running account bills and retention of the security deposit, BEPL issued a demand notice dated 19th April 2019 to SPCPL. SPCPL denied BEPL’s claims. Following that, BEPL approached the ‘MSME SAMADHAAN’ for resolution; however, due to inaction by the latter, the proceedings became void ab initio under the prescribed statutory limit.

Thereafter, BEPL filed an application under Section 9 of the IBC to initiate a CIRP, and although SPCPL responded to this petition by expressing its willingness to amicably resolve the dispute, it failed to achieve the same.

Subsequently, BEPL relied on the arbitration agreement contained in Clause 13 of the work order to file an application under for the appointment of an arbitrator. It also petitioned under seeking attachment of a certain amount as interim relief.

SPCPL objected to the petition’s maintainability stating that a CIRP application under can only be filed when the dispute is non-arbitrable, and hence the matter could no longer be referred to arbitration. Besides this, SPCPL, inter alia, contended that BEPL failed to follow the pre-arbitral steps provided in the agreement, failed to comply with the notice requirement pursuant to , engaged in forum shopping, and claimed varying amounts before different forums.

Issue

Whether initiation of a CIRP under Section 9 of the IBC renders a dispute non-arbitrable?

Analysis

The court highlighted the settled proposition of law that the NCLT’s jurisdiction can be invoked only in case of determined debts. Notably, a mere assertion before the NCLT that there is a definite amount to be paid would not amount to a party admitting the claimed amount. This was particularly the case in light of SPCPL’s repeated denial of its liability, as seen in its response to the demand notice, the petition before the NCLT and the present petition. Thus, notwithstanding the Section 9 IBC petition, the court asserted that there was no admitted debt, and hence the dispute remained arbitrable.

The court relied on the Apex Court’s discussion on the ‘doctrine of election’ in , wherein it was stated that if two remedies provide the same relief, then a party has the option to elect either of the remedies. But the doctrine of election remains inapplicable in circumstances where the ambit and scope of the remedies are essentially different. The court also cited the Apex Court’s observation in , where it held that the doctrine of election is a branch of the estoppel rule and may preclude a party from asserting a right that he would have otherwise had. However, in the present matter, the scope of enquiry in the proceedings before the NCLT and the arbitral tribunal were entirely distinct, and thus BEPL did not indulge in forum shopping. Moreover, the claims at the various forums were filed at different times, thereby justifying the variation in the claim amount.

Turning to the issue of compliance with the pre-arbitral steps, the court referred to Clause 13 of the work order, whereby the requirement of conducting mutual discussions at the site level and referring the issue to the Regional Head only applied in disputes involving the interpretation of clauses, technical specifications, etc. However, the dispute at hand dealt with the non-payment of dues. Moreover, the petitioner had approached MSME SAMADHAAN for the resolution of the disputes, and thus BEPL was deemed to have satisfied the prescribed procedure under Clause 13.

The court also addressed the issue of the statutory requirement of notice by analysing the purpose of providing notice under Section 21 of the A&C Act. It observed that this requirement was satisfied by the demand notice and even if the demand notice failed to meet the threshold, then the proceedings under Section 9 of the IBC, wherein SPCPL, in its response to the petition, had expressly agreed to refer the dispute to arbitration, amounted to sufficient compliance of the notice requirement under Section 21 of the A&C Act.

As a result, the court allowed the petition under Section 11 of the A&C Act and appointed an arbitrator to adjudicate the dispute between the parties. Moreover, in dealing with the Section 9 A&C Act petition, the court granted interim relief by directing SPCPL to maintain a certain balance amount till adjudication of the dispute.

Conclusion

On assessing the settled proposition of law regarding the NCLT’s jurisdiction, along with the Apex Court’s position on the doctrine of election and forum shopping, a Single-Judge Bench of the Delhi High Court held that the initiation of a CIRP under Section 9 of the IBC would not render a dispute non-arbitrable because the mere assertion of an admitted debt does not amount to admitted liability, particularly when the other party has continuously refused such liability. Moreover, approaching the NCLT prior to seeking reference to an arbitral tribunal would not result in forum shopping, given the distinct scope of enquiries of a proceeding before the two forums.

[This case note has been authored by Ayush Prashant Waghmare, an Editor at Mapping ADR.]

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Case Citation: 41 CRP 85 of 2022 and CRP 86 of 2022

Court: The High Court of Tripura

Coram: S.G. Chattopadhyay, J.

Date: 21st December 2022

Keywords: Section 47 of Code of Civil Procedure, 1908 (the ‘CPC’), Section 34 of Arbitration and Conciliation Act, 1996 (the ‘A&C Act’ ), Section 36 of the A&C Act, non-obstante clause

Overview

The High Court of Tripura (“High Court”) rejected the objections raised against the enforcement of the arbitral awards under on the ground that an arbitral award passed by the arbitrator is final and binding on the parties and can only be challenged on the grounds prescribed under . An application made under Section 47 of CPC in a proceeding under , for enforcement of the Arbitral Award would make Section 34 of the A&C Act redundant.

Facts

Two different disputes had arisen between Shri Ashes Deb, the contractor and the Executive Engineer, Longthorai Division, Public Works Department (R & B) (O.P.), for which two orders were passed in favour of Shri Ashes Deb by Justice S.C. Das, former Judge of the High Court of Tripura (the sole arbitrator) on 29th January 2021.

Shri Ashes Deb being the award holder, approached the Commercial Court, seeking enforcement of the two awards in terms of Section 36 of the A&C Act by registering the applications as case No. Ex (M) 30 of 2021 and Ex (M) 29 of 2021, arising from work orders dated 11th December 2019 and 05th August 2013, respectively. The State against whom the arbitral awards were passed raised objections against the enforcement of both arbitral awards under . The District Commercial Court, West Tripura, Agartala, however, rejected the two applications registered by the State through an impugned common order dated 20th August 2022, and the State was directed to pay the whole amount of the award to the award holder. The Court also held that an arbitral award passed by the arbitrator is final and binding on the parties and can be challenged only on the grounds prescribed under and the application made under Section 47 of CPC in a proceeding under Section 36 of the Act for enforcement of the Arbitral Award would make t redundant.

The State, thus, moved to the High Court by filing two Civil Revision Petitions directed against the common order passed by the District Commercial Court.

Issue

Whether the application of , in a proceeding under , render redundant?

Analysis

The State, being the Petitioner in this appeal, contended that the District Commercial Court’s decision was erroneous, by stating that an objection raised under Section 47 of the CPC is applicable against the enforcement of an arbitral award since such an award would be treated as a decree of the Court and it would be executed in the same manner as if it were a decree of the Court. The Respondent (Shri Ashes Deb), on the other hand, argued that the only recourse available to the party aggrieved by the arbitral award is to approach the Court under Section 34 of the A&C Act and since no application was filed for setting aside an arbitral award under this provision within three months as provided under sub-section (3) of (which is extendable to a further period of 30 days, provided, if the Court is satisfied that a sufficient cause prevented the applicant from making the application within the said period of three months), there is no scope under the law to entertain any challenge against the enforcement of an award under . Furthermore, the counsel appearing for the Respondent contended that Section 5 begins with a non-obstante clause and clearly restricts judicial intervention insofar as matters governed by Part I of the Act are concerned.

The High Court dismissed the Petitions on the grounds that a challenge against an arbitral award can be made only by taking recourse to and that too on the grounds set out under Sub-Section (2-A) of Section 34 of the Act. Once the time prescribed for filing such an application has expired, the Court cannot intervene on the grounds of , which stipulates that in matters governed by the respective Part, no judicial authority shall intervene except where so provided in that Part. Thus, in view of the prohibition imposed by , any objection except under Section 34 of the Act cannot be entertained.

Conclusion

is essentially a remedy to raise an objection against the execution, discharge or satisfaction of any decree between two or more parties or their representatives. As mentioned in the judgment of , the A&C Act is a self-contained code that comprehensively deals with all aspects of the Arbitration and simultaneously does not envisage the application of the whole gamut of CPC.

The decision by the High Court deals with a similar and broader issue of the extent of the applicability of the CPC in a case governed by the Arbitration Act. The High Court’s view that the application of for the enforcement of the Arbitral Award would leave redundant and that it would be inconsistent with the scheme of the A&C Act, reaffirms the stance of Supreme Court in the case of .

[This case note has been authored by Kaushiki Singh, an Editor at Mapping ADR.]

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